LedgerX provides an exchange for trading crypto currency derivatives like futures, swaps, and options. They also operate a clearing platform that other exchanges can integrate with to power their trading operations. This platform allows these exchanges to use LedgerX’s infrastructure for fund custody, clearing, and settlement. LedgerX also has a separate business for large institutional clients to directly deal with each other, while using their clearing platform to facilitate trades.
As a crypto exchange, being able to convert fiat money like US dollars to cryptocurrencies and vice versa is core to their platform. They need to receive funds, store, and attribute them to users as they’re used for transactions, and they need to enable withdrawals. Their business model involves charging a trading fee to customers directly using their exchange and taking a revenue share from third-party exchanges using their clearing platform.
Everyday, millions of dollars in crypto currency derivatives are traded on the LedgerX exchange and across the third-party exchanges using their clearing platform. Scalable and foolproof money movement is critical to ensuring their products work accurately and efficiently. Any errors can lead to delays in making funds available to users, or in the worst case, result in large losses due to missing funds that need to be written off.
Today, LedgerX supports three broad money movement flows:
They also handle three reconciliation processes:
Given the complex nature of their business, LedgerX also needs to manage multiple bank relationships, with multiple accounts at each bank for proper funds segregation. Additionally, they need to provide customers complete visibility into payment statuses. To minimize payment failures and returns, they also need to verify their bank account details. They primarily use wires for payments, with ACH being added to support their clearing platform customers.
When LedgerX first started, money movement was entirely manual. To make a deposit, a customer first needed to create a deposit notice in the LedgerX app that would let LedgerX know to expect a deposit on that customer’s account. LedgerX would then provide them with the wire details that the customer would use to manually initiate a wire from their bank. LedgerX’s operations and support teams would then comb through bank statements each day to reconcile the payment to the customer’s account. This process was both time-consuming and error-prone with customers using incorrect wire transfer details or sending the wrong amounts.
To make a withdrawal, LedgerX staff would have to manually initiate wires out of their bank accounts. Since they didn’t have a way to validate customer bank account details, there would be a lot of instances of wires getting returned or delays in crediting the customer. This created a substantial operational overhead for the team. “We used to spend at least 8-9 hours every day across our support team just on payment operations,” said Brandon Kotara, CTO at LedgerX. “This was especially acute when transaction volumes spiked. It would be all hands on deck, with pretty much everyone at the company helping with payments.”
Reconciling balances between the platform and their bank accounts every day was also time-consuming and error-prone since it required manually comparing transactions and balances. They realized their current setup was going to be costly and unsustainable at scale and started looking for a better way. They ruled out building direct bank integrations because their engineering team needed to focus on the core product instead of figuring out the nuances of bank payment systems. They’d also need to repeat the process for each new bank.
It took 3 weeks for LedgerX to complete the bank connection setup. “Modern Treasury was the only comprehensive payments API that we found after we decided against directly integrating with banks,” said Brandon. “After they helped us through the bank setup, it took us less than a week to integrate with the API to automate all of our payment flows.”
The admin interface added more visibility and security to their payment operations. Using Controls, they set up rules to flag payments above a certain amount to the finance team for approval. They could also give ops teams view-only access to ensure balances between the platform and their bank were consistent. They’re also using the admin interface to give each customer of their clearing platform selective access to the bank accounts used with LedgerX.
Finally, they’ve also automated onboarding and verifying bank accounts of new customers using Counterparties. This has increased customer security on the platform and reduced payment errors due to incorrect bank account information.
Initially only supporting Bitcoin, LedgerX has added Ethereum-based derivatives as well. They’re now focused on ensuring their platform can handle the additional scale that trading activity will bring.
They are also excited about the clearing platform business. It’s already one of the largest third-party clearing services for derivatives exchanges, and they expect close to five different exchanges (including their own) using it. “There’s no way we could have built our clearing platform business, which is a rapidly growing part of our revenue today, without automating money movement. It would have been entirely unfeasible to do it without a solution like Modern Treasury,” said Brandon.